Cryptocurrencies like bitcoin are not the “new gold,” Goldman Sachs said in a note, advising investors that precious metals “remain a relevant asset class” in portfolios.
In a note to clients earlier this week, Goldman detailed the benefits of holding gold in a portfolio.
“The use of precious metals is not a historical accident – they are still the best long-term store of value out of the known elements,” the investment bank said.
But it also addressed the rise of cryptocurrencies. Many commentators have dubbed bitcoin “digital gold” because of the fact it has a finite supply and has at times seen price rises due to geopolitical tensions.
“Gold wins out over cryptocurrencies in a majority of the key characteristics of money,” Goldman said.
The analysts said that digital wallets are highly vulnerable to hacking, and poses “significant regulatory risks.” In recent case of China which recently issued a ban on cryptocurrency exchanges and put a stop to ICOs
Goldman also said that cryptocurrencies are subject to network or infrastructure risk during a crisis just like the recent hard fork which lead to the creation of a new cryptocurrency “bitcoin cash”
Some regulators, like those in Japan, have allowed bitcoin to be used as a form of payment. Bitcoin can also be broken down into much smaller units. While this may make it look like a better medium of exchange than gold, Goldman said that transaction fees have risen sharply this year. The average transaction fee at its peak in mid-July was just below $9, according to bitinfocharts.com.
The investment bank said that gold is not subject to competition from alternatives. Bitcoin has rival virtual currencies like Monero and Dash of which there are over 1,100 cryptocurrencies in existence.
And finally, Goldman said that gold “is clearly better at holding its purchasing power, and has much lower daily volatility.” The note said that bitcoin’s volatility averaged almost seven times that of gold in 2017.
The price of spot gold is up over 10 percent this year. Bitcoin meanwhile is up over 400 percent. However, the cryptocurrency has had wild swings in price.
“Cryptocurrencies are not the ‘new gold’ despite their recent popularity,” Goldman concluded.